Slovenia's Ominous Downgrade

Euro-zone governments, watch out! Moody's surprising decision to junk Slovenia, bringing to a halt a sale of dollar-denominated bonds that was drawing strong demand, is an ominous move from the already bearish ratings firm. The downgrade shouldn't stop Slovenia from raising cash, but investors in other euro-zone governments should pay attention to Moody's aggressive stance.

The problem is not the resulting Ba1 rating itself. Yields on Slovenia's bonds suggest that investors already consider the country as below investment-grade...